The division of assets and debts in a divorce depends on several factors. California residents may be aware that California is a community property state. This means that all marital property is divided 50-50. There are 41 equitable distribution states, and in those states, property is divided by the court depending on many different variables such as length of the marriage, if children are involved and the earning potential of the parties.
There are two types of property to be considered for division in divorce, marital property and separate property. Separate property is property owned prior to the marriage, gifts to either party, inheritances, legal settlements for personal injury and property excluded by a prenuptial or postnuptial agreement. All other property is considered marital property.
Marital debt must also be divided, including mortgages, loans, credit card debt and student loans. Student loans are becoming larger and more prevalent. Division depends on whether the loan was used for living expenses, signifying that both parties benefitted from the loan, or simply for tuition and books. If a professional degree was obtained, the student loan may be the liability of the holder. But some states, like New York, consider professional degrees to be marital property, so the debt would belong to both parties.
The division of assets and debts during a divorce is a complex process dependent on many factors. Thorough understanding of state law, divorce and property laws and family law may make a substantial difference in the division of marital property. Prenuptial and postnuptial agreements may help both parties understand expectations and protect assets. Divorce is never easy, but it can be made easier by understanding the law and options available.
Source: Forbes, “Are Student Loans Incurred During The Marriage Considered Marital Debt?“, Jeff Landers, December 17, 2013